Swiss says commodity traders should voluntarily disclose more

“There is no evidence, at present, of a general trend amongst companies to move away from Switzerland, but much will depend on whether Switzerland succeeds, also in the future, in providing a competitive legal and economic setting for conducting business,” the government said today. “Switzerland thus faces the challenge of maintaining and strengthening the features that make it an attractive and reliable business location, including the competitiveness of its tax regime and the efficiency of its financial centers.”

The pressure to regulate the industry comes as the European Union pushes Switzerland to abandon a so-called auxiliary regime that has attracted commodity traders by allowing them to pay less tax on income from outside the country. That permits traders in Geneva to pay an average tax rate of 12 percent.

While the commodities industry created about 8,000 jobs in Geneva alone, the costs outweigh the benefits because the “dodgy activities” of trading companies could damage Switzerland’s reputation, Carlo Sommaruga, a lawmaker for the Social Democratic party, the second-biggest in the Swiss lower house, said last year.

Corruption Threat

The kind of corruption seen under the United Nations oil- for-food program for Iraq under Saddam Hussein could damage Swiss companies’ chances of winning contracts abroad and diminish the country’s role as a global financial center, according to Sommaruga. A UN found 2,253 companies made illegal payments to Iraq to win oil business, former U.S. Federal Reserve Chairman Paul Volcker, who led the report, said in October 2005.

In May 2006, Trafigura pleaded guilty in a U.S. court to falsely telling energy companies that Iraqi oil it sold them in 2001 had been obtained in compliance with the UN’s oil-for-food program. Vitol, which had revenue of almost $300 billion last year, pleaded guilty to grand larceny in November 2007 and paid $17.5 million restitution for its actions when buying Iraqi oil under the program.

The Swiss government proceeded with the joint investigation of the commodities industry by the finance, economy and foreign ministries even after lawmakers voted 98 to 93 against it 12 months ago.

Human Rights

The review follows Switzerland’s decision in March 2009 to meet international standards to avoid being listed as a tax haven and attempts to settle a U.S. investigation of at least 11 banks that allegedly helped American clients hide money from the Internal Revenue Service. Some Swiss lawmakers are concerned that the lack of commodities industry regulation may hurt a nation struggling to shed its image as a haven for undeclared assets.

“The Federal Council expects of all companies operating in or out of Switzerland to conduct themselves responsibly, and with integrity, in complying with human rights, environmental, and social responsibility standards, both in Switzerland and abroad,” the Swiss government said in the report.